According to the FBI's Internet Crime Report for 2022, over $10 billion was lost due to fraud.
Not surprisingly, most of these losses were caused by scams involving cryptocurrency investments!
In this article, I am going to cover the major scam techniques out there and explain how they work.
More importantly, you’re going to get some useful advice on how to keep your money and crypto safe.
So, let’s get started!
First, how safe is crypto?
Well, I can understand if you have doubts about the safety of crypto.
Anyone would, especially since huge amounts of money have been lost to fraud through them.
To be clear, though, crypto can be safe.
In fact, most crypto scams are just the same old con games, just packaged in a new, modern way.
Crypto projects actually contain a lot of features designed to safeguard their users.
These safeguards can usually only be breached when unsuspecting users are tricked into giving up sensitive information.
In other cases, scammers take advantage of investor’s greed and lack of due diligence to sell them visions of wealth, only to deliver nothing.
Speaking of which…
What Are Some of the Most Common Crypto Scams?
One of the most frequent scams in crypto is known as the “Rug Pull”.
Let’s say a criminal wants to scam money from investors this way.
They go ahead and lay the foundations for a fake crypto project called the “Ostrich Blockchain”.
Now, the key here is promotion.
They pay influencers to endorse it, buy press releases, set up websites, and start marketing campaigns on social media.
Then, they invite investors like you or me to get in early before the Ostrich blockchain explodes to millions of dollars.
This is usually done through something called a token presale.
Because of the fear of missing out, or FOMO, investors jump on board, purchasing a lot of Ostrich tokens.
After raising millions of dollars, though, the website and social media accounts are abruptly abandoned.
The Ostrich Project is finished, and the funds are never seen again.
There’s also a variant on this scheme…
Let’s Look At Another Common Scam, The Pump And Dump
A pump and dump basically works in a similar way to a rug pull, but with a slight difference.
Let’s use the example of the Ostrich Blockchain again.
Now, as part of building this project, 1 million Ostrich coins are earmarked for circulation.
Out of that 1 million, the creator keeps 500,000 in their wallet, making the other 500,000 available to investors in the market.
A coordinated campaign begins, aiming to pump the price of Ostrich coins.
This may include social media and a lot of promises, all designed to inspire more people to buy.
As a result, the price goes up... right up until the creator dumps their 500,000 coins held in reserve, cashes them out, and disappears!
Typically, that huge withdrawal crashes the price of Ostrich coins, making them worthless.
How about a scam you might have heard of…
Are there Ponzi Schemes In Crypto?
Ponzi Schemes are nothing new; they have been around almost as long as finance has!
In essence, a Ponzi Scheme is designed to pay early investors a return by using money from new investors.
Let’s imagine a new Play-to-Earn crypto game is launched.
In this game, when you complete levels, you get paid in crypto coins.
Sounds great, right?
In order to play the game, you need to purchase a fairly expensive, upgradeable NFT-backed sword.
The rewards are a great incentive, though, and the game quickly explodes in popularity.
On the surface, the swords appear to be like a ticket you need to access the game and the possibility of earning money.
But in reality, it's actually the money being used to pay players as they progress through the game.
So, what happens when new player sign-ups fall off?
It means everything screams to a halt, of course!
While the initial players who joined the game first might have made a lot of money, most players who came in later end up with losses.
There’s another old trick you should be aware of…
Let's Cover Crypto Investment Schemes
Crypto investment schemes tend to be a bit more straightforward.
In essence, someone promises to deliver insane returns on capital by investing on your behalf.
These investments could be in traditional finance or in up-and-coming crypto projects.
These scammers will even show you testimonials of previous clients who made serious money through their platforms.
They might even create a believable history of payments and withdrawals for clients.
However, it’s all an illusion.
The moment you part with your money, the scammers disappear.
Sadly, you are never going to see or hear from them again.
Alright, so, How You Can Identify and Avoid These Scams?
The first rule in crypto investing is that if a deal looks too good to be true, it probably is.
Of course, crypto has been known to deliver insane returns.
You may have seen projects attaining 100x growth or more, but this is the exception—and not the rule!
So, if you see promotions promising a massive return or more on a new crypto project, be wary.
Check the background of the project—who is behind it? Are they real, visible people, or just using anonymous names?
Does the project have any real utility behind it? What are the applications of the technology?
When you look at the socials of the project, do the users involved chat naturally or do they look scripted?
If you feel something is off about any of these, it’s a telltale sign that a crypto project might not be what it seems.
Also remember that there is no “risk-free” investing when it comes to crypto.
Because it’s such a volatile, unpredictable asset, there is always a chance you could lose money.
So at any rate, make sure to do deep research early to avoid regret later!
Moving On, Let’s look at some Tools You Can Use To Be Safe in Crypto
One tool I often recommend is called Revoke.
When you use DApps like OpenSea, Uniswap, and others, you must grant them permission to access your wallet so that you can buy or sell crypto assets.
This opens a potential avenue for abuse; if the platform becomes compromised later, someone could access your wallet!
However, Revoke basically ensures that such permissions are removed when they are no longer needed.
Handy, right?
Another recommendation is to use Web 3 Antivirus.
This is basically a malware detection tool designed specifically for crypto.
It helps detect phishing attacks and ensures your transactions are being made exactly where you want them.
Finally, look into getting a hardware wallet.
These are basically designed to keep your crypto off the internet.
It virtually guarantees that no hackers can get their hands on your assets and is crucial for long-term storage.
Ledger is the best hardware wallet you can use right now; you should check it out.
Well, with all that theory out of the way…
What is an example of a real-life Crypto Scam?
There have been many crypto scams over the years.
However, the biggest crypto scam in history was OneCoin, by Bulgarian CryptoQueen Ruja Ignatova.
It was a classic rug pull that was so sophisticated and well executed that no one noticed until it was too late.
OneCoin basically sold people the idea of it becoming the “next big thing”.
It was supposed to be the hottest crypto project, designed to revolutionize how money worked.
The project utilized a type of multi-level marketing approach to try and lure in investors.
In the end, $4 billion was invested in OneCoin… and it all disappeared.
Now, it is worth noting that some of the people behind OneCoin have already been arrested and jailed.
Some of that $4 billion has also been recovered by law enforcement, especially in China.
But what makes this scam stand out is that the founder, Ruja Ignatova, has never been found.
She disappeared and remains in the FBI’s top 10 most wanted list to this day.
Conclusion
Before I complete this article, let’s go over some of the things you learned.
First, you learned that while crypto has its risks and scams, it is generally safe to invest in, as long as you do it correctly.
You also discovered some of the most common crypto scams out there, including rug pulls, classic pump and dumps, Ponzi schemes, and crypto investment schemes.
You even saw examples and simple illustrations that show how these scams work.
Importantly, you were shown how to avoid these scams, including how to not fall for FOMO and the urge to invest in projects offering insane returns without risk.
Finally, you learned about one of the biggest real-life crypto scams of all time, OneCoin.
Well, that’s it for this article. I hope you learned something useful!
